Dividend Income Tax for Foreign Individuals and Foreign-Invested Enterprises Unified at 20%
nashnova research
China's Ministry of Finance and State Taxation Administration imposed a 20% individual income tax on dividends paid to foreign nationals by foreign-invested enterprises, effective September 1, ending a tax exemption that stood for over thirty years and reshaping the after-tax calculus for foreign shareholders.
What exactly changed?
Announcement No. 27 of 2026 requires foreign nationals to pay individual income tax on dividends from foreign-invested enterprises at a flat rate of 20%, classified under "interest, dividends, and bonus income."
The rule simultaneously repeals Article 2(8) of the 1994 circular (Cai Shui Zi [1994] No. 20), which had granted foreign nationals a full exemption on such dividends.
In plain terms = for over three decades, foreign shareholders in China's foreign-invested enterprises paid zero tax on dividends. That door closed on September 1.
Why end the exemption now?
The 1994 exemption was introduced when China was aggressively courting foreign capital — a lower tax threshold was the welcome mat.
This reflects a broader policy shift from "super-national treatment to attract FDI" toward tax parity — Chinese nationals have long paid 20% on dividend income; foreign nationals now face the same rate.
In plain terms = the preferential era — where foreign shareholders got a deal domestic shareholders did not — is over. Same rules for everyone.
Who withholds, and by when?
Foreign-invested enterprises must withhold and remit the tax when paying dividends, filing with tax authorities by the 15th of the following month.
This means → compliance responsibility lands on the company first — a missed withholding is the enterprise's liability before it is the individual's.
If the enterprise fails to withhold, the foreign individual must self-report and pay by June 30 of the year after receiving the income; tax authorities may also set a separate deadline.
How much less does a foreign shareholder take home?
On a RMB 1 million dividend, the new rule means RMB 200,000 in tax and a net payout of RMB 800,000 — versus the full RMB 1 million under the old exemption.
This means → effective dividend yield for foreign shareholders drops by 20 percentage points overnight, hitting high-dividend foreign-invested enterprises hardest.
The key issue going forward: whether foreign shareholders can claim tax-treaty relief through bilateral agreements between their home country and China — that will be the central point of negotiation as the new rule takes effect.
市场有风险，内容仅供研究参考，不构成投资建议。